The economy in the Fourth District continued to grow since late August, but at a slower pace than in the preceding reporting period. The slowing is attributed primarily to a weakening in manufacturing output. Most District home builders experienced a slight uptick in sales since our last report. However, they see this as a seasonal adjustment rather than the beginning of an upward trend. Activity in commercial construction was steady, with several builders citing a small decline in backlogs. With the exception of food products, retail sales in the District were flat to declining. Reports on business and consumer lending showed that, in general, demand was steady or had increased slightly. The mortgage market remains sluggish, while the use of home equity lines of credit saw a slight rise. Oil production was up slightly, while natural gas production declined. And the demand for trucking and shipping services was stable.

Employment levels across the District were generally flat. Staffing firms reported an increase in the number of job openings, primarily in the health-care industry, while the number of job seekers was flat. The majority of staffing contacts told us that it is increasingly difficult to find quality job applicants. Wage pressures were limited to the energy sector and some segments of the health-care and financial services sectors. For the most part, supplier prices and material costs were stable. Several manufacturers told us that they plan to increase product prices effective early in the fourth quarter.

Manufacturing
Most District manufacturers reported that production has been flat or decreasing since late August. Further, a majority said that their companies showed a slight decrease in output on a year-over-year basis. Looking forward, almost all of our contacts anticipate production remaining at current levels or decreasing slightly. Several manufacturers told us that they have experienced a decrease in demand for their products during the past six weeks. One contact said that the housing slump is having a major impact on his business. On the other hand, auto assembly plants reported a significant production increase on a month-over-month basis. The increase is attributed to assembly lines returning to normal production levels after retooling for model changeovers.

About half of our contacts reported lower capacity utilization rates since our last report. Most manufacturers also stated that capital expenditures were on plan. Respondents who said that they are reducing capital spending cited the need to conserve cash as the reason. During the fourth quarter, capital spending is expected to be consistent with levels seen earlier in the year. When asked about input prices, we received a mixed response; however, a majority said prices were stable. Global demand for raw materials and energy was the most often cited reason for elevated prices. Only a few of the manufacturers surveyed have attempted to increase their own prices during the past six weeks. However, several reported price increases will be going into effect early in the fourth quarter. Employment levels were flat and hiring in the near future is expected to be very slow. Wage pressures have not been an issue; however, a few manufacturers singled out rising health-care costs as a significant concern.

Real Estate
Most District home builders experienced a slight uptick in sales since our last report. However, they see this as a seasonal adjustment rather than the beginning of an upward trend. New home sales continue to be down year-over-year. Our contacts also reported a slight rise in cancellations, which they attributed to buyers having difficulty qualifying for mortgages. Looking forward, respondents remain uncertain about when the housing market will turn around. Home builders reported increasing their level of discounting. As a result, inventories are nearing levels that are appropriate for current sales volume. Material costs remain stable. Several contractors told us that they have reduced their workforces.

Most commercial contractors reported that business has been steady since late August as well as on a year-over-year basis. Segments showing strong activity include health-care, education, and manufacturing, while general office space slowed. Although a majority of our contacts are satisfied with their current backlogs, several have experienced a decline during the past few months. Looking forward, nearly all contractors expect activity in 2008 to be at or near 2007 levels. For the most part, material costs were stable during the past six weeks--though steel prices rose. In turn, almost all builders held their own prices steady. Workforce levels remain unchanged.

Consumer Spending
District retailers reported a slight decrease in general merchandise sales since our last report, while sales of food products were stable. Looking forward, grocery store managers and restaurateurs anticipate a modest increase in sales, while general merchandise retailers were uncertain of future sales trends. With the exception of dairy and meat products, supplier prices were stable during the past six weeks. New and used car sales were flat to declining. However, most dealers were optimistic about sales in the upcoming months due to change in the model mix and a cut in loan rates. Hiring across all retail segments was limited to normal workforce turnover. No wage pressures were reported. Almost all contacts told us that capital spending remains on plan.

Banking
Demand for business and consumer loans was mixed, with half of our contacts reporting a slight increase. Industries seeking loans were broad-based. Auto loans were flat, while a few bankers experienced a pickup in the use of home equity lines of credit. The mortgage market continues to be sluggish. We heard mixed reports on core deposits. In general, national banks experienced modest to significant growth, while responses from community banks ranged from significant decreases to slight growth. In general, credit quality for consumer and business applicants remained stable. Almost half of our respondents stated that delinquencies have increased slightly, especially in commercial real estate, residential mortgages, and home equity lines of credit. A majority of bankers reported increased capital spending in 2007, especially for new technology.

Energy
Since our last report, natural gas production within the District declined, while oil production was flat to increasing. At the same time, prices received for gas fell and crude prices rose. Several energy producers commented that there may be a decrease in gas drilling because of falling demand and prices. Capital expenditures remain on plan, with no change expected during the next few months. All our contacts said that material and equipment costs have remained stable over the past six weeks. A majority of producers told us that they have recently increased employment and will continue hiring in the near future. However, finding skilled workers remains an issue. Almost all respondents reported continuing wage pressures.

Transportation
Demand for trucking and shipping services was characterized as stable by most carriers. All our contacts reported difficulty in passing increased costs through to their customers. However, fuel surcharges are routinely accepted by customers. Representatives told us that they do not anticipate changing capital spending plans. No wage increases were reported during the past six weeks and most hiring was attributed to driver turnover.